Dell has displaced Hewlett-Packard from the top slot in the Indian personal computer market after six years. In the second quarter (April-June) of 2010, Dell grabbed a market share of 15.2 per cent, against Hewlett-Packard’s 14.3. Dell Consumer Vice-president/General Manager (global sales & marketing) Michael Tatelman discusses with Bhupesh Bhandari how Dell reached the top in India, and how its business model has changed over the years with the emergence of new sales and distribution channels. The interview was conducted before IDC came out with its numbers for the April-June quarter.
What do you attribute Dell’s success in India to?
We entered this market many years ago from a commercial perspective and have been here with our direct model for quite some time. A little over two years ago, we also opened our indirect channels. We approached the market in a relatively novel way. We spoke to our customers. Some loved to configure the products online and customise and personalise the products. Others liked to shop in a retail environment where they can touch and feel. And still another set of people wanted to go to a retail environment and have the ability to configure the product. So, our channel model is quite novel in that we have all three: Online, in-store and online in-store.
Which of the three gives you maximum numbers?
We don’t break the numbers down by channels, but we are experiencing growth in all our channels right now. I can’t really say if one is growing faster than the others. That won’t be true. When we first opened our new channels, I guess they were growing faster than our direct model, but not today. The second thing is that we have had quite a revolution in our product line. Three years ago, when we revitalised our consumer business, we invested pretty heavily in industrial design and I think we became the “design meters” in this industry. Indian consumers have an eye for value and design, and we have done very well from a product perspective. The third factor, and possibly the most important, is that we have taken a very local approach to the market. We have a huge presence here — 24,000 people. So I would like to think we are pretty much a local company. I am not sitting next to an American, or a European; we have an all-Indian team here, just as we have tried to build local management teams in all our markets. Co-incident with that, we also have a very local channel presence. All our channel partners are small distributors who have very intimate knowledge of their markets. And it’s not just the metros, we are in 300 cities plus and continue to expand. All of these have converged to build a successful business around a very strong brand.
How much of this growth is led by notebooks?
It is a pretty significant amount. Our notebook business is growing faster than the overall market. We have been number one in the notebook business for a while.
You have locked the enterprise market very well too by aligning with Microsoft and not Linux. This way, analysts say, buyers feel more confident.
It’s a matter of choice. We try and build experiences; particularly in the commercial business, we try to build services that go around as experiences. So, we bought Perot Systems to really bolster our services business. Certain applications have done well in a Linux environment, and others have done better in a Microsoft environment. Certainly, Microsoft Windows 7 has been a fantastic improvement over previous operating systems. On the client side, I think we see a lot more Windows-based products across all our lines of business. On the service side, it is mixed.
How have offline sales affected the famous Dell supply chain?
It has affected quite a lot. You have to build a lot more lead time into the model when you do more than one (channel) at a time. We have had to build up from the ground systems, corporate planning, forecasting, and replenishment systems. We have had to learn to do demand planning that enables us to ship our products in a cost-effective manner. And we have had to learn how to build a replenishment model vis-à-vis a fill model that enables us to have very fast response. The direct model, combined with the channel model, does offer our channel partners a pretty interesting alternative in that we have partners with no inventory. They use Dell.com as their supply engine. The consumer will come and configure a system and order it; we will ship the product directly to the consumer, bypassing the need for inventory at all. Not only have we had to create more traditional multi-tier distribution models, we also have taken the lead using the tools we have for creating gen-next distribution models as well.
How accurate are your demand forecasts? Has the index of your supply chain efficiency remained the same or has it come down now?
We are learning. There are so many variables in supply and demand. I would say there is plenty of room for improvement, but we are more than on track in our internal targets on where we want to be. It is also very dependent on where you are in the world. The length of the supply chain does matter. So, India is better than places that are further away from the factories. China is probably the best in the world. India, from a demand-planning perspective, has done a great job. It’s not as consistent everywhere in the world.
What’s your take on Asian personal computer brands? Where do you see them in the days to come?
Brand matters to consumers. In India, it matters a lot. People look at the Dell brand for a lot of different things like value, reliability, for the support that we give, for the experiences we bring. So there is a heritage of consistent experience with our brand. There are always new entrants into the market place. This is a big market that is growing dramatically. Connectivity to the internet is growing dramatically. There is a plenty of room for competitors, but I think we have a very trusted brand and we cherish and nurture it, and we try to live up to the expectations of the people.
Is Dell ready to gain market share at the cost of profits?
We are really looking at profitable growth in all the territories where we do business. The investments we make are some time long-term but they are balanced with our (profit) margin and profit targets. Strategically, we want to continue to grow our profits as fast, or even faster, than now.
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Are your products priced the same across markets, or have you done strategic pricing in emerging markets?
Taxes aren’t the only variable. Warranty and service, logistics and shipping, are all parts of the transportation cost from different factories around the world. Still, they are close. But there are a lot more variables than just taxes.
What per cent of turnover does Dell keep aside for promotion?
We are probably pretty efficient in our expenditure. It helps to have a great brand. Certainly, the mix today is different than what it has been in the past. The demand model is strictly to bring people to the online store; it is very different when you have a multi-channel model. In fact, the stores themselves act as a fairly significant marketing engine. So, we spend more on merchandising and demo equipment. Two years ago, I didn’t have demo. Today, we have thousands and thousands of computers in retail stores for people to see. There is a little difference in the mix, but we are a little bit more efficient than our competitors in our marketing spend.
What’s the scope of your partnership with Google?
We have a long-term multifaceted partnership with Google, certainly around search. We are a big customer of it in the advertising world. Obviously, we have come to the market with Android-based products in the smart phone space. The Streak, which we launched in Europe more than a month ago, is built on Android. On the operating system side, we have a strong and growing partnership with Google.
What’s been the most important learning for Dell from India?
This very local channel model is really unique. Over the years — I lived in China for some years — I have learnt how important it is to have local knowledge; and the lesser layers you can get between people who take the decisions at corporations, the better off you are. This experience in India with local partners and local management has cemented my belief that that’s an imperative when you are building a global business.